State of Alabama v. United States

• Decision Date: 12 March 1930
• Docket Number: No. J-607.,J-607.
• Parties: STATE OF ALABAMA v. UNITED STATES.
• Court: U.S. Claims Court

38 F.2d 897 (1930)

STATE OF ALABAMA v. UNITED STATES.

No. J-607.

Court of Claims.

March 12, 1930.

Thomas E. Knight, of Selma, Ala., and A. A. Evans, of Montgomery, Ala. (C. C. McCall, of Montgomery, Ala., on the brief), for State of Alabama.

G. H. Foster, of Washington, D. C., and Herman J. Galloway, Asst. Atty. Gen., for the United States.

Before BOOTH, Chief Justice, and GRAHAM, WILLIAMS, LITTLETON, and GREEN, Judges.

GRAHAM, Judge.

This case came up on demurrer to the petition. It presents the following admitted facts: Congress, by section 124¹ of the National Defense Act, 39 Stat. 166, 215 (50 USCA § 79), authorized the construction of "dams, * * * power houses, and other plants * * * for the generation of electrical or other power," admittedly in the exercise of its constitutional power. As an incident to the completion of the dam there was created a large amount of water power. The dam is known as the Wilson Dam and is situated in the state of Alabama. Section 124 of the said act authorized the President, in dealing with the "products of such plants," as follows:

"* * * Any surplus which he shall determine is not required shall be sold and disposed of by him under such regulations as he may prescribe.

"The President is hereby authorized and empowered to employ such * * * agencies as may in his discretion be necessary to enable him to carry out the purposes herein specified."

The petition inter alia avers:

"* * * That heretofore the United States constructed Wilson Dam across the Tennessee River at Muscle Shoals in Alabama, and that the said United States has heretofore constructed a power plant in connection with said shoals in Alabama, which said plant is used by the said United States in manufacturing and developing hydroelectric energy. * * * That the said United States has sold to the Alabama Power Company during the calendar year of 1926 approximately 429,311,000 kilowatt-hours of hydroelectric power developed by said plant in said State of Alabama. * * * that since October 1, 1927, and continuously up to and including this date, said United States has exercised the privilege of manufacturing and selling hydroelectric power in the State of Alabama to the Alabama Power Company, a corporation.

"* * * That the Legislature of the State of Alabama passed a revenue law, approved by the Governor of Alabama July 22, 1927, which provides, among other things, as follows:

"`Section 2-D:

"`In addition to all other taxes of every kind now imposed by law or now imposed by this act, there is hereby levied a license or privilege tax upon each person, firm, corporation, agent, or officer engaged in the business of manufacturing and selling hydroelectric power in the State of Alabama, for the privilege of engaging in such business; said license or privilege tax shall be due and payable in advance on the first day of October of each year and shall be in a sum equal to two-fifths of a mill upon each kilowatt-hour of hydroelectric power manufactured and sold during the preceding calendar year.'

"The said revenue law of Alabama, approved July 22, 1927, also provides that in case said tax is not paid when due, then 15 per cent. thereof shall be payable thereon as a penalty for the same not having been paid by the time it was due under said revenue law; and said act of the Legislature of the State of Alabama hereinbefore referred to provides that said tax shall be due and payable on, to wit, November 1, 1927. * * * That there has been demanded of the said United States the tax due by said Government on 429,311,000 kilowatt-hours of hydroelectric power sold by said Government to the Alabama Power Company, a corporation; and that said Government has failed and refused to pay said tax, and that said tax, not having been paid when due, the said Government is liable for said tax and the interest thereon since November 1, 1927, and 15 per cent. thereof as a penalty thereon for the failure to pay said tax when the same became due under the provisions of said act of the Legislature of Alabama, approved July 22, 1927.

"That during the calendar year 1926 the total amount of hydroelectric power generated by the United States at the power plant referred to in Paragraph III hereof was 432,629,000 kilowatt-hours, of which the United States used, in operating locks in aid of navigation and for lighting and power at its plant, 3,318,000 kilowatt-hours, and of which 429,311,000 kilowatt-hours were sold to the Alabama Power Company, as set forth in this amended petition.

"* * * That while the said United States may have constructed said Wilson Dam in the said State of Alabama and a hydroelectric plant at said dam in connection therewith, and may have manufactured thereat hydroelectric power in pursuance to the national defense act (section 79, title 50, of the United States code; section 124 of the national defense act), said United States, after having manufactured said hydroelectric power, did sell the same to a corporation or an industry carried on by private capital.

"* * * That the total amount of money claimed of the United States in this suit is a tax due for the privilege exercised by said United States, of manufacturing and selling 429,311,000 kilowatt-hours of hydroelectric power sold to the Alabama Power Company, a corporation carried on by private capital, which said privilege tax amounts to approximately $173,051.60, together with interest thereon at 8 per cent. per annum, and the further sum of 15 per cent. thereof as a penalty thereon due on account of the failure or refusal of the United States to pay said tax when due, that is to say, November 1, 1927."

It will thus be seen that the Secretary of War leased a certain surplus amount of the gross electric current produced by this plant to the Alabama Power Company, an Alabama corporation, the balance being used by the government for its own purposes. The state of Alabama by statute levied and attempted to collect a tax on this surplus of the gross amount of the current produced, on the basis of a sum equal to two-fifths of a mill upon each kilowatt-hour of current supplied to the Alabama Power Company. It was a direct tax on a portion of the gross production of the plant measured by the amount of current supplied to the Alabama Power Company. The government refused to pay the tax, and the state of Alabama is here asking for a judgment for the amount of the tax, with interest and a penalty for failure to pay.

The question is, Did this statute of the state of Alabama impinge upon the constitutional rights of the United States?

A tax on property is seen to be a tax on the thing called ownership, which is merely a person's legally protected interest in the thing owned.

We are of the opinion that a state cannot legally tax the sale or the proceeds of a sale of its property by the United States government, and that is what the state of Alabama has attempted to do in this case. And further:

First. That in the exercise of its constitutional power the United States has the right, as Congress may deem proper, as a means of carrying into effect its constitutional powers, without being retarded, impeded, or burdened by acts of the states, to purchase property (Osborn v. United States Bank, 9 Wheat. 738, 867, 6 L. Ed. 204; Western Union Telegraph Co. v. Texas, 105 U. S. 460, 26 L. Ed. 1067; Van Brocklin v. Tennessee, 117 U. S. 151, 6 S. Ct. 670, 29 L. Ed. 845; Ohio v. Thomas, 173 U. S. 276, 282, 19 S. Ct. 453, 43 L. Ed. 699; North-western Insurance Co. v. Wisconsin, 275 U. S. 136, 48 S. Ct. 55, 72 L. Ed. 202; Panhandle Oil Co. v. State of Mississippi ex rel. Knox, 277 U. S. 218, 221, 48 S. Ct. 451, 72 L. Ed. 857, 56 A. L. R. 583); to hold and possess property (Van Brocklin v. Tennessee, supra; Clallam County v. United States, 263 U. S. 341, 344, 44 S. Ct. 121, 122, 68 L. Ed. 328; Lee v. Osceola Improvement District, 268 U. S. 643, 645, 45 S. Ct. 620, 69 L. Ed. 1133; and New Brunswick v. United States, 276 U. S. 547, 48 S. Ct. 371, 72 L. Ed. 693); and the right to sell its property (Choctaw, O. & Gulf Railroad Co. v. Harrison, 235 U. S. 292, 35 S. Ct. 27, 59 L. Ed. 234; Indian Oil Co. v. Oklahoma, 240 U. S. 522, 36 S. Ct. 453, 60 L. Ed. 779; Gillespie v. Oklahoma, 257 U. S. 501, 505, 42 S. Ct. 171, 66 L. Ed. 338; and Jaybird Mining Co. v. Weir, 271 U. S. 609, 612, 613, 46 S. Ct. 592, 70 L. Ed. 1112).

Aside from the express authority given by the National Defense Act (see footnote) to sell and dispose of "any surplus" of the "products" of the plant, the right of the government to dispose, by lease or otherwise, of the "products" created by the building of the dam, erected for a public purpose, was a constitutional right and the exercise of it a means of carrying into effect the constitutional power. The disposal of the "products" could be by lease or otherwise; a lease may be a sale of a right when a price is paid.

Second. That the right to sell property which it owns is the correlative of the right to buy. They mutually imply and involve one another. The right to tax one involves the right to tax the other, i. e., the purchase as well as the sale. To say that a state can tax the right to buy or the proceeds of a purchase by the government for its legal uses and the right to sell or the proceeds of a sale by the government of what it had purchased and owned would put the United States government at the mercy of the state. It may be noted that this section, 124 (50 USCA § 79), authorizes the purchase of materials. This right of purchase could not be interfered with by a similar tax on the dealer, say, in lumber or oil, who sold these materials to the United States for the purposes of this plant. See Panhandle Oil Co. v. United States, supra. The same principle must apply to the sale of materials or the products of their use, and the reach of protection for the sale must stretch as far as the purchase of materials.

Third. That no state can, by taxation or...